Navigating Geopolitical Uncertainty: Evolving Financial Crime Risk Assessments
Mounting geopolitical tensions have led to further sanctions and trade restrictions and there is more friction between sanctions setting bodies, making an already complex field even more difficult to navigate. In this climate, organisations should prioritise robust, up-to-date risk assessments and dynamic frameworks to effectively manage rapid change and uncertainty. Governments and regulators continue to refocus their laws and regulations to fight the risk of geo-political uncertainty and exploitation of financial systems.
The risks associated with money laundering, terrorism financing, proliferation financing, violations of sanctions, bribery and corruption, fraud, and cybercrimes are on the rise. Cybercrime has emerged as a significant concern for regulators who are increasingly focused on addressing it alongside financial crime. It is essential for firms to identify, understand and effectively manage their exposure to these risks not just at a single point in time, but on an ongoing basis.
What Should You Be Doing?
There is a key question to ask: Does your financial crime risk framework allow you to quickly respond to the evolving global geopolitical landscape and the risks that emerge from that instability?
Organisations need two key elements to facilitate timely responses: policies that allow risk assessments and controls to rapidly respond to risk; and risk assessments that are granular and flexible enough to capture changing risk profiles.
- Robust Policies
Policies, particularly relating to financial crime and sanctions must be robust enough to clearly set out the decision-making structures, principles and guidelines to achieve consistent behaviours that comply with laws and regulations. Firms should ensure that policies are rigid enough to be relied upon, clear and not subject to interpretation. Also, policies should allow for reasonable delegation to appropriately identify, measure and control risks as they may emerge.
- Risk Assessments
From our experience of reviewing financial crime risk assessments across many sectors and jurisdictions, we have observed a broad range of approaches to risk assessment designs and methodologies. The most effective risk assessments clearly and granularly capture the risk type, specific risk, inherent impact and likelihood, controls, control effectiveness, residual impacts and likelihood and risk owners and actions.
Many risk assessments struggle to keep pace with rapidly evolving risk exposures, which is particularly relevant in this unstable geopolitical landscape. Static models fail to account for sudden shifts in regulation, trade policies or emerging conflict zones. Adapting swiftly to regulatory and legal change is crucial to avoiding financial penalties and reputational damage. Moreover, a proactive approach to risk management enables firms to remain agile, turning challenges into opportunities for growth in an increasingly uncertain world.
Next Steps
We recommend that firms review their existing risk assessment for contemporaneity, accuracy, completeness and adequacy. Consider whether risks are clearly and granularly defined and whether they are specific to the firm’s activities and operating environment. Is the control framework clearly mapped to the risks and operating effectively? Question your methodology and challenge whether the impact and likelihood scores accurately reflect the effect risk may have on your business.
Evaluate your governance framework and processes to ensure that they allow your business to respond to emerging and evolving risks. Consider the level of review and approval required when updating risk assessments and question whether that process unnecessarily slows down your ability to respond.
Our work with many organisations of all sizes and complexity across multiple sectors and jurisdictions gives us expertise and insight to support with the development of your risk governance and assessment framework. We can support you with reviewing, developing and implementing:
- financial crime frameworks;
- risk assessments and methodologies;
- policies and procedures; and
- effective management information.
To find out how we can support you, please get in touch with your usual Waystone representative or contact us via the button below.